Record bitcoin price propped up by another digital currency

As CCN reported, Tether has increasingly come under scrutiny as the tether token's market cap has swelled over the past calendar year.

When the bitcoin price falls, traders and journalists scramble to explain the sudden decline. The latest reason? A research paper hot off the press at the University of Texas at Austin.

The paper by John Griffin, a finance professor at the University of Texas who has researched fraud in other markets, and graduate student Amin Shams, found that the virtual coin Tether was likely used to prop up Bitcoin prices late a year ago. This has been widely rumored within the cryptocurrency community for ages, but the study lends an air of academic credibility to the claims.

As evidence for this claim, the Griffin and Shams note that there tends to be negative end-of-month pressure on the bitcoin price in months when a large number of tethers have been issued but not in others.

The researchers found that tether issuances rose previous year during periods when the price of bitcoin was dropping.

Around the time of the bitcoin peak, cryptocurrency experts suspected Bitfinex was involved in manipulation, and the US Commodity Futures Trading Commission subpoenaed the exchange after concerns were raised. And, in January, Tetherparted with its auditor, Friedman LLP. This pattern is only present in periods following printing of Tether and not observed by other exchanges. Since exchanges often face difficulties finding the banking partners and achieving the regulatory compliance necessary to offer fiat-to-crypto trading pairs, many altcoin exchanges use tether as a proxy for physical Dollars.

While there is little public information on about how Tether was created, it generally exchanges for around $1 as each coin is supposed to be backed by $1 of fiat money in a bank. "Tether issuances can not be used to prop up the price of bitcoin or any other coin/token on Bitfinex", he said.

Tether [USDT], one of the most traded cryptocurrencies supported by platforms like Bitfinix, ShapeShift, Bittrex, and Omni, shows an indication of being spent on Bitcoin in its critical moments, according to research by a University of Texas professor.

To prevent future price manipulation, the researchers say that "external capital market surveillance and monitoring" may be necessary to keep the market free from tampering.